After a big run to start the year, Nvidia’s (NASDAQ:NVDA) stock looks to have stalled. But don’t worry. It likely won’t be long before the rally in the chipmaker continues.
In the last month, NVDA stock has dipped 5%. The stock has struggled to rise above $950 per share and has retreated each time it hits that level. However, the current pullback comes after Nvidia had a huge run in January and February. Year to date, the stock is up 83% and a leader in the S&P 500 index. The current dip is likely only a temporary breather before NVDA stock again runs flat out. As such, investors would be smart to buy the dip.
Blockbuster Earnings
The rally in Nvidia’s stock that began in earnest at the start of 2023 has pushed the company to some important milestones. Earlier this year, Nvidia’s market capitalization crossed the $2 trillion mark and it is now the third largest publicly traded company in the world after Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT). The company’s influence on the market is growing and the main catalyst for NVDA stock continues to be the company’s earnings.
Since last summer, the stock market literally pauses in the days ahead of Nvidia’s earnings reports. It’s as if investors and traders are holding their collective breath to see if the company can exceed the lofty expectations that have been set for it. So far, Nvidia hasn’t disappointed and the entire market rallies after the company beats Wall Street’s forecasts. In February, Nvidia reported earnings that covered the final quarter of 2023 that crushed expectations and showed mind boggling growth at the microchip and semiconductor maker.
Fueled by unrelenting demand for its microchips and semiconductors among artificial intelligence (AI) companies around the world, Nvidia reported that its Q4 2023 sales rose 265% year over year, while its profits grew 769% from a year earlier. All metrics topped analysts’ estimates, and the guidance provided was even better. For the just completed first quarter of the year, Nvidia has forecast sales of $24 billion. If achieved, that would be up 234% from sales of $7.19 billion a year earlier. Can Nvidia do it again? There’s no reason to doubt the company at this point.
Keeping Pace
The big question concerning Nvidia on Wall Street is how long can the company continue to exceed the sky high expectations that have been set for it? After all, the comparables the company faces are only getting tougher. At some point, Nvidia will fail to jump the bar that’s been set for its earnings and the stock will crash, right? Maybe not. Nvidia is continuing to pull out all the stops to stay ahead of its competitors and ensure that its earnings run at a blistering pace.
In March, Nvidia unveiled its next generation AI microchips at a developer conference. Called the Blackwell series, the first of these new chips, the GB200, is the company’s most powerful technology to date. Specifically, the new GB200 chip includes what Nvidia calls a “transformer engine” that’s designed to run transformer based AI, one of the core technologies underpinning chatbots such as GPT-4. Nvidia is already receiving huge pre-orders from companies such as Microsoft and Meta Platforms (NASDAQ:META).
At the same time, Nvidia has signalled its intention to become less of a microchip provider and more of a platform provider going forward. To that end, the company introduced new revenue-generating software called Nvidia Inference Microservice (NIM) that it will charge a subscription fee for enterprise customers to access. And, Nvidia continues to expand globally, recently announcing plans to build a $200 million AI center in Indonesia as it grows throughout Asia.
Buy NVDA Stock
Nvidia currently controls about three-quarters (75%) of the AI chip market worldwide. That dominance shows no signs of decreasing. If anything, Nvidia’s market share is likely to increase as it begins to deliver its Blackwell series of microchips later this year. While the company’s earnings and stock have produced blockbuster gains over the last 18 months, there’s every reason to believe that the growth will continue. The bottom line is that Nvidia has the expertise and the products to remain the foundation of the AI revolution. For this reason, NVDA stock is a buy.
On the date of publication, Joel Baglole held long positions in NVDA, MSFT and AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
